Feds Object to Unilateral Contract Price Reductions

A somewhat disconcerting trend from several state and local agencies is to attempt to unilaterally reduce existing contract prices is apparently not acceptable to the federal government.

A few agencies have sent letters to their consultants that effectively state “due to budget constraints we are going to reduce the price of all contracts by X%, and there will no changes in either scope or schedule”.

While we have sympathy with agencies in the current economic crunch on their available funds, this is clearly a unilateral change in a single contract term (price) being imposed by one party to the contract.

FHWA has advised one state DOT in a letter dated October 21st, that this process does not comply with applicable laws and regulations. FHWA states that any change in a contract term requires a renegotiation of all terms of the contract, including reducing scope if price is reduced. In other words a unilateral decision by one party in the contract is not a valid contracting approach.

We believe this advisory letter may discourage other agencies that are thinking of using this approach to reduce their expenses. We also believe this is a fair approach by FHWA, since basic contract law does not permit unilateral contract changes such as were being sought by the government.

AASHTO Audit Committee Adopts New Audit Guide

By a vote of 40 to 3 the AASHTO Audit Committee has adopted the proposed revised Audit Guide.

The draft Guide now goes to the full AASHTO group for approval, and is expected to be adopted at their meeting the week of October 19th.

If adopted as expected, the Guide will become effective January 1, 2010.

Since this Guide requires firms serving DOT clients to be proactive to obtain approval of their costs, we urge all firms to become familiar with its contents and begin to plan for compliance.

New AASHTO Audit Guide Available

The final draft of the revised AASHTO Audit Guide is now available for review and downloading. It is available at:

http://audit.transportation.org/?siteid=43 & select Uniform Audit & Accounting Guide 09-11-09 (No Markup) to open the PDF file, which can be saved.

This is the version expected to be adopted, first by the AASHTO Audit Subcommittee (by the end of September), the full AASHTO group (at their October meeting) and then to be effective January 1, 2010 and applicable to all costs and audits for years starting on or after this date. FHWA is expected to proceed with rulemaking in 2010 to make this guide part of the rules applicable to federal grants.

Firms with DOT clients should pay particular attention to the chapters on timekeeping, labor costing and compensation. If the firm has their own CPA overhead audit they should have their CPA review the chapters on audit standards and the audit checklist.

The major beneficial change for firms is this manual will be adopted by all states, and will apply to all states. This will greatly reduce the individual overhead rate schedules now required because so many states have policies that require unique treatment of costs just for the individual state. The guide clearly states that any deviations from FAR (or this guide) must be based on state law.

AASHTO Audit Guide Delayed

Despite the effort to have the revised AASHTO Audit Guide ready for a final approval by the AASHTO Audit Group at their annual convention in July, certain portions of the draft are still being revised.

The new plan is to have a final draft ready by mid August and to have the states ratify it by written or electronic ballot.

The goal is to have the full AASHTO approval occur at AASHTO’s annual meeting in October, and then to have FHWA begin any necessary rulemaking early in 2010.

For a copy of the most recent draft of the guide go to http://audit.transportation.org/?siteid=43 and select the current draft (with or without comment versions are available)

This updated guide will (if adopted as expected) significantly change allowable cost practices in the states that have established individual state policies on costs, as the primary purpose of this update to the guide is to standardize the states to FAR standard practices.

Delay on Transportation Act Seems Likely

The House Ways & Means Committee has announced they will not take up a renewal of the soon to expire Surface Transportation authorization until after they have finished with Health Care Reform.

With Health Care now looking like it will extend into at least September (with the August Recess) it appears unlikely that Transportation will be not be finalized in time to prevent a lapse in September.

Look for an extension of current programs at current funding levels.

However, the Administration has proposed an 18 month extension.

Also complicating matters is the shortage in the Highway Trust fund that will begin to reduce spending next month if this is not fixed.

Transportation uncertainty is likely to delay transportation construction in states as they are unlikely to be able to make long-term project plans with uncertain funding.

Firms are likely to see lower new starts until this issue is respolved on a long term basis.

September 8 Appears to be E-verify deadline

After several delays, Congressional pressure to implement the requirment for E-verify use by all federal contractors is no o track to actually go into effect on September 8.

As part of the final rules, the requirment to terminate employees within 30 days following a "no-match" result has been modified.

New Jersey DOT Seeking Salary Freeze in Consultant Contracts

In a June 26, 2009 letter to all NJ DOT consultants, the state is advising that all new contracts will no longer contain cost escalation clauses. DOT will also be seeking to change existing contracts to eliminate current clauses permitting cost escalation.

This is primarily aimed at labor escalation, meaning the DOT is seeking a labor rate freeze for all existing and future contracts.